3 Common Cash Flow Issues That Plague The Construction Industry
August 20, 2019 —
Patrick Hogan, HandleThe construction industry has its fair share of serious cash flow problems. The nature of the industry with long periods between billing and collection, the unpredictability of some business factors, and even the day-to-day decisions of stakeholders have a huge effect on cash reserves.
So how can you protect your business from these cash flow problems? Having a greater awareness of the most common cash flow problems is the key to maintaining your financial stability. Here are some of the top cash flow issues that construction companies need to watch out for.
1. Uncontrolled business growth
The growth of a business as a cash flow problem sounds unintuitive. It is supposed to be a positive thing. So how could it hurt your construction business? When it goes out of control.
During the growth phase, the company will need to expand its operations to meet the increasing demand. This means renting a larger office space, hiring more staff, and buying more inventory, all of which can burn through the company’s cash quickly. The more substantial the level of your growth is, the more your cash flow is affected.
Growth is a good thing, but it is important to be aware of the pitfalls that you could encounter that can lead to cash flow problems. If you are dealing with a volatile growth instead of a stable one, you have to think twice before expanding your operations. A quarter with a large number of construction project deals does not guarantee the same happening in a subsequent quarter.
2. Change of scope or scope creep
The scope, or the statement of work, is the foundation that guides a construction project from start to finish. It specifies all the deliverables needed by the project as agreed by all stakeholders. When the existing requirements are altered, new features are added, or project goals are changed uncontrollably, what happens is scope creep and it can hurt a company’s cash flow.
Construction projects can take a long time before they are finished. A lot of factors can result in changes in the scope. There may be changes in the market strategy, market demand, and other unpredictable variables that make changes in the project requirements a necessity. These changes build up and the project may shift away from what was intended, causing delays, loss of quality, and the rise of planned costs.
One way to prevent scope creep from affecting cash flow significantly is charging a fee for variations of the scope of work. However, having a solid and clear scope baseline is still the best way to combat scope creep. Reminding clients of what you signed up for by referring to the baseline is a good strategy to deal with pushy clients.
3. Payment delays and nonpayment
As previously mentioned, the construction industry tends to have a lengthy period between sending an invoice and collecting payments. And if you are too passive in your collection, clients are more likely to extend pay periods and delay paying you.
Unexpected delays in payment and other payment issues can have a devastating effect on companies that have little to no cash reserves. Without a cash cushion to fall back on, payment issues can threaten the existence of the business itself. If you are unable to manage your receivables, you will not have enough cash to pay the bills, pay employees, and fund your growth.
Payment delays and nonpayment can happen for several reasons. They can be simple like mistakes in the invoicing or the person needed to approve the invoice is unavailable. More serious reasons like a client unsatisfied with your service or, worse, trying to scam you are also possibilities. For these reasons, it is crucial to communicate with clients properly and see if you can agree with a payment structure or pursue legal action.
The construction industry operates slightly differently from other industries. Different projects produce different cash flow issues and require different strategies. By being aware of the top cash flow problems that can hurt your construction business, you will be better equipped in dealing with them in case they happen.
About the Author:
Patrick Hogan is the CEO of Handle, where they build software that helps contractors, subcontractors, and material suppliers secure their lien rights and get paid faster by automating the collection process for unpaid construction invoices. Read the court decisionRead the full story...Reprinted courtesy of
Patrick Hogan, CEO, Handle
North Carolina Supreme Court Addresses “Trigger of Coverage,” Allocation and Exhaustion-Related Issues Arising Out of Benzene-Related Claims
January 04, 2023 —
White and Williams LLPOn December 16, 2022, the North Carolina Supreme Court decided Radiator Specialty Co. v. Arrowood Indem. Co., 2022 N.C. LEXIS 1122 (Dec. 16, 2022), in which it addressed coverage issues arising out of claims by individuals alleging injury from exposure to benzene contained in the insured’s products. Affirming in part and reversing in part the intermediate appellate court’s decision, the court held: (1) an “exposure trigger” applied; (2) defense and indemnity costs were subject to pro-rata allocation; and (3) vertical exhaustion applied to the duty to defend under certain umbrella policies. Two justices concurred in part and dissented in part.
I. Background
In Radiator Specialty, the insured (RSC) was named in hundreds of underlying suits arising from individual plaintiffs’ alleged exposure to benzene contained in its products. Between 1971 and 2012, RSC was insured under primary, umbrella and excess liability policies issued by various insurers. In 2013, RSC sued the insurers in North Carolina state court, seeking coverage for approximately $45 million in defense and indemnity costs incurred for the underlying claims. In 2016, the trial court decided motions for summary judgment on a number of coverage issues. Following a bench trial in 2018, the trial court entered final judgment, which required the insurers to reimburse $1.8 million of RSC’s past costs. The rulings were appealed to the North Carolina Court of Appeals, which issued a decision in 2020. In 2021, the North Carolina Supreme Court granted RSC’s and certain insurers’ petitions for discretionary review of the Court of Appeals’ decision.
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White and Williams LLP
Sun, Sand and Stir-Fry? Miami Woos Chinese for Property: Cities
February 18, 2015 —
Blake Schmidt and Bill Faries – Bloomberg(Bloomberg) -- Miami has a Little Havana and Little Haiti, a neighborhood known as Westonzuela and even the Venetian Islands. What it doesn’t have is a Chinatown.
Shan-Jie Li wants to do something about it. The developer from the city of Linyi in China’s wintry northeast aims to make Florida’s most-populous metropolitan area, with its clean beaches and tropical climate, a destination for Chinese property investors.
“We are focused on bringing to Miami the new wave of Chinese who are wealthy and educated,” Li said in a phone interview via a translator. “The environment in Miami makes for a very suitable lifestyle. Playing golf and going to the beach are huge attractions.”
Reprinted courtesy of
Blake Schmidt, Bloomberg and
Bill Faries, Bloomberg
Mr. Schmidt may be contacted at bschmidt16@bloomberg.net; Mr. Faries may be contacted at wfaries@bloomberg.net
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BHA Attending the Construction Law Conference in San Antonio, TX
February 18, 2015 —
Beverley BevenFlorez-CDJ STAFFBert L. Howe & Associates, Inc. (BHA) is proud to be joining with the State Bar of Texas, Construction Law Section as a sponsor and exhibitor at the event, and is excited to announce that they will also be sponsoring a raffle for a $100 Nordstrom gift card to given away at the Conference. Just stop by the BHA booth, and drop your card in the bowl for a chance to win.
With offices in San Antonio and Houston, BHA offers the experience of over 20 years of service to carriers, defense counsel, and insurance professionals as designated experts in nearly 5,500 cases. BHA’s staff encompasses a broad range of licensed and credentialed experts in the areas of general contracting and specialty trades, as well as architects, civil and structural engineers, and has provided services on behalf of developers, general contractors and subcontractors across the state of Texas.
BHA’s experience covers the full range of construction defect litigation, including single and multi-family residential (including high-rise), institutional (schools, hospitals and government buildings), commercial, and industrial claims. BHA also specializes in coverage, exposure, and delay claim analysis.
Download the seminar brochure and register...
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Anti-Concurrent Causation Endorsements in CGL Insurance Policies: A Word of Caution
August 29, 2022 —
David M. McLain – Colorado Construction LitigationWhile I have not performed exhaustive research into the origin of anti-concurrent causation (“ACC”) endorsements on insurance policies, or how or when they migrated from first-party property policies to commercial general liability (“CGL”) policies, they have done so. The result for Colorado’s construction professionals may rear its ugly head as an unwelcome and surprise outright declination of coverage for construction defect claims.
ACC endorsements state that if there are two causes of damage: one of which is covered by a policy and one of which is not, the carrier can invoke the ACC endorsement to disclaim coverage for all of the damage. An exemplar ACC endorsement is ISO Form CG 21 67, entitled “Fungi or Bacteria Exclusion.”
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David McLain, Higgins, Hopkins, McLain & RoswellMr. McLain may be contacted at
mclain@hhmrlaw.com
Congratulations to Las Vegas Team on Their Successful Motion for Summary Judgment!
May 06, 2024 —
Dolores Montoya - Bremer Whyte Brown & O'Meara LLPThis case arose from an alleged trip and fall on an uneven surface in a parking lot outside of BWBO’s client’s restaurant. Plaintiff alleged more than $385,000 in past medical specials (with high potential for future care and treatment) with exposure in excess of $1,000,000.00. The Plaintiff named as Defendants BWBO’s client as well as several entities related to their landlord.
Early in the case, Las Vegas Partner Jeffrey W. Saab and Senior Associate D. Ryan Efros moved for summary judgment based on terms of the restaurant’s lease. They argued that based on the lease, the duty to maintain the surface of the parking lot fell exclusively to the landlord, rather than the restaurant’s client. Plaintiff opposed the motion arguing that the prevailing case law held that any agreement between a tenant and its landlord does not preclude a plaintiff from asserting either or both defendants breached their duties of care. Jeff and Ryan distinguished that case and successfully persuaded the Court that there could be no contractual duty and no common law duty to maintain the parking surface, clearing the way for the court to grant summary judgment.
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Dolores Montoya, Bremer Whyte Brown & O'Meara LLP
State-Fed Fight Heats Up Over Building Private Nuclear Disposal Sites
August 03, 2022 —
Mary B. Powers & Debra K. Rubin - Engineering News-RecordThe U.S. Nuclear Regulatory Commission and Interim Storage Partners, a joint venture that gained a federal license last year to build an interim storage facility for spent commercial nuclear fuel at a Texas site, have until Aug. 3 to answer a federal lawsuit claim by state officials that a new U.S. Supreme Court decision eliminates the federal agency’s licensing authority.
Reprinted courtesy of
Mary B. Powers, Engineering News-Record and
Debra K. Rubin, Engineering News-Record
Ms. Rubin may be contacted at rubind@enr.com
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Hunton Insurance Group Advises Policyholders on Issues That Arise With Wildfire Claims and Coverage – A Seven-Part Wildfire Insurance Coverage Series
June 27, 2022 —
Scott P. DeVries & Yosef Itkin - Hunton Insurance Recovery BlogWildfires destroy millions of acres a year in the United States, spewing smoke across much of the nation. The cost of damage alone over the past several years soars into the hundreds of billions. As wildfires continue to spread, particularly as we enter wildfire season, policyholders’ claims will rise and with that, so too will wildfire insurance coverage issues. Many believe that when a fire damages their property and/or interrupts their business operations, a claim gets submitted and is automatically paid; sadly, this is often not the case.
In a seven-part series delving into issues relating to wildfire insurance coverage, the Hunton insurance group provides a comprehensive understanding of the types of policies that may be available, legal and factual issues that may arise, and steps policyholders can take – both in advance and during the claims process – to maximize recovery. The following issues will be addressed:
- Part One: Types of Wildfire-Related Losses and the Policies That May Provide Coverage
- Part Two: Coverage for Smoke-Related Damages
- Part Three: Standard Form Policy Exclusions
- Part Four: Coverage for Supply Chain Related Losses
- Part Five: Valuation of Loss, Sublimits, and Amount of Potential Recovery
- Part Six: Ensuring Availability of Insurance and State Regulations
- Part Seven: How to Successfully Prepare, Submit and Negotiate the Claim
Reprinted courtesy of
Scott P. DeVries, Hunton Andrews Kurth and
Yosef Itkin, Hunton Andrews Kurth
Mr. DeVries may be contacted at sdevries@HuntonAK.com
Mr. Itkin may be contacted at yitkin@HuntonAK.com
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